What Was the Effect of the Pandemic on Company Profits?

Wagner Geremia
Qual Foi o Efeito da Pandemia Sobre o Lucro das Empresas?

Since the beginning of the pandemic, the global scenario has been characterized by a significant increase in prices, bordering on hyperinflation . However, how did this rise in costs impact the financial performance of companies included in B3 's Ibovespa index ? In this article , we will examine not only how these companies successfully faced the adversities of inflation , but also how they achieved remarkable levels of profitability.

We began our analysis in January 2020, before the pandemic significantly impacted capital markets on an unprecedented global scale. At that time, the Brazilian economy had an interest rate of 4.5% per year and 12-month accumulated inflation of 4.5% per year.

In the financial market, investors seek profitable shareholdings and income. Diversifying assets and portfolios, together with macro and microeconomic analysis, boosts earnings. The companies attract funding, capital and investors. Trading shares, investing, speculating and covering requires economic analysis. The investors obtain gains, dividends and interests on their own capital. The volatility of assets is proportional to earnings. The pay-out challenges the risk-reward ecuation. In the stock market, variable income, fixed income, derivatives and raw materials, the focus is on earnings.

Image 1: Interest rates in Brazil in January 2020.

In the financial market, investors seek profitable shareholdings and income. Diversifying assets and portfolios, together with macro and microeconomic analysis, boosts earnings. The companies attract funding, capital and investors. Trading shares, investing, speculating and covering requires economic analysis. The investors obtain gains, dividends and interests on their own capital. The volatility of assets is proportional to earnings. The pay-out challenges the risk-reward ecuation. In the stock market, variable income, fixed income, derivatives and raw materials, the focus is on earnings.

Image 2: Pre-pandemic IPCA at 4.5% per year.

These data indicate that the interest rate in Brazil was at one of its lowest historical levels, suggesting potential advantages for the economy. The logic behind this observation is clear: lower interest rates make it easier to access loans for both consumers and businesses.

In the second phase of our analysis, we seek to evaluate an estimate of companies' profits during this period. As market data reveals, we identified an IFRS accumulated profit (12TTM) of R$233 billion, accompanied by a price-to-earnings multiple of 19.5.

In the financial arena, investors seek lucrative stock holdings and returns. Diversifying assets and portfolios, along with macro and microeconomic analyses, propels gains. Companies attract funds, capital, and investors. Trading stocks, investing, speculating, and hedging require economic analyses. Investors gain profits, dividends, and interest in equity. Asset volatility corresponds to gains. Pay-out challenges the risk-return equation. In the stock market, variable, fixed income, derivatives, and commodities, the focus remains on earnings.

Image 3: Ibovespa Price to Earnings on 01/06/2020.

How is the current economic situation in Brazil?

After the pandemic period, the SELIC rate is set at 11.75% per year, and accumulated inflation since January 2020 to date reaches approximately 28%, as indicated by the IBGE inflation calculator .

In the financial scenario, investors seek profitable shareholdings and income. The diversification of assets and portfolios, combined with macro and microeconomic analysis, boosts profits. Companies attract investment, funds and capital. Trading stocks, investing, speculating and hedging require economic analysis. Investors earn gains, dividends and interest on equity. The volatility of assets is proportional to earnings. Pay-out challenges the risk-reward formula. In the stock market, variable and fixed income, derivatives and commodities, the focus is on gains.

Image 4: Accumulated inflation of 28% for the period. Source: IBGE

Continuing with our analysis, we will estimate the corporate profit of the theoretical portfolio that makes up the Ibovespa index .

In the financial scenario, investors seek profitable shareholdings and income. The diversification of assets and portfolios, combined with macro and microeconomic analysis, boosts profits. Companies attract investment, funds and capital. Trading stocks, investing, speculating and hedging require economic analysis. Investors earn gains, dividends and interest on equity. The volatility of assets is proportional to earnings. Pay-out challenges the risk-reward formula. In the stock market, variable and fixed income, derivatives and commodities, the focus is on gains.

Image 5: Profit of companies listed on Ibovespa in January 2024.

When we observe the performance of the stock index , which attracts the attention of many investors , we see that the profit associated with the theoretical portfolio reaches R$470 billion. Thus, we can say that company profits increased by 107% for the same period of the year where inflation grew by approximately 28%.

What was the impact of inflation on company profits?

As noted, Brazilian companies managed to present solid results in the face of the immense difficulties imposed by the pandemic. We can say that Brazilian companies and their managers did a good job during this challenging period of the pandemic. Even in the face of accumulated inflation that approached 28%, companies managed to deliver more significant profits , recording an increase of 107% compared to the pre-pandemic period.

How is the stock market compared to pre-pandemic?

In the financial scenario, investors seek profitable shareholdings and income. The diversification of assets and portfolios, combined with macro and microeconomic analysis, boosts profits. Companies attract investment, funds and capital. Trading stocks, investing, speculating and hedging require economic analysis. Investors earn gains, dividends and interest on equity. The volatility of assets is proportional to earnings. Pay-out challenges the risk-reward formula. In the stock market, variable and fixed income, derivatives and commodities, the focus is on gains.

Image 6: Ibovespa before and after the pandemic.

The Ibovespa index , which was previously at 117 thousand points with a profit multiple of around 19, is now quoted at 127.6 thousand points, with a profit multiple close to 10. There is the prospect of recovery this year, especially considering the comparison of our valuations with those of the stock markets of developed nations. It can be seen that we are more attractive, that is, with lower profit multiples , since the economies of emerging countries are generally considered more risky. This implies that the foreign investor may require some level of discount . It is worth mentioning that Brazil's credit rating was recently raised by risk agencies , which contributes to making this year a good opportunity to invest in Brazil.

In the next articles, we plan to investigate the level of inflation and profit growth in the American market . So, stay tuned to our blog for more information.

If you need investment advice and need to find the ideal investments , contact Wagner Geremia.

Keywords:

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